Many big investors look at the drop in the stock market as a buying opportunity. Small business owners should consider it an opportunity as well. That's because it can be a smart time to start a retirement plan.
Workers may appreciate the chance to buy stocks while they're lower _ or, if they're uneasy about the market, to start accumulating cash. And this is a good time of year to set up a plan and get a tax break, even for 2010.
WHY YOU SHOULD CONSIDER A PLAN
The job market is showing signs of picking up. The more hiring starts to gain momentum, the more people will be looking for work. And if you want to hold on to your best workers, you need to remain competitive. If you're thinking of hiring, one way to get the best candidates is to be able to offer them a benefit like an individual retirement account or 401(k).
The contributions you make to a retirement plan for your employees are deductible. If you ask an accountant or tax attorney about getting more deductions for your business, quite often the first they're likely to mention is a retirement plan.
A LOOK AT THE PLANS
It's important to learn about your options before you do anything. IRS Publication 560, Retirement Plans for Small Business, outlines the different plans and their requirements. You can download it from the IRS website, www.irs.gov. But before you make a decision, meet with your accountant or a human resources consultant, or both. They can tell you which kind of plan makes the most sense for your firm.
Time and expense may be the biggest concerns of many small business owners. They need a plan that isn't complicated to set up and run, and that won't have a lot of fees.
Perhaps the best plan for these owners is a SEP, or Simplified Employee Pension. It requires the smallest amount of paperwork and reporting requirements of any plan. A small business owner can go to a bank or other financial institution to create a SEP. Although there is an IRS form to be completed, Form 5305, Simplified Employee Pension _ Individual Retirement Accounts Contribution Agreement, it does not have to be filed with the government. With a SEP, the employer makes contributions, but employees do not contribute to these accounts.
The next step up is the SIMPLE, or Savings Incentive Match Plan for Employees. It enables employers to match employee contributions. There are more IRS requirements to meet with a SIMPLE than a SEP. For example, a SIMPLE can only be created by a company with 100 employees or fewer who each were paid at least $5,000 during 2010.
A SIMPLE calls for more paperwork than a SEP, but is still relatively easy. There are two forms for setting up a SIMPLE. Form 5305-SIMPLE is used if the business owner chooses the bank where all of the employee pension accounts will be located. Form 5304-SIMPLE allows the employees to maintain their pension accounts at the bank of their choice. Like the SEP forms, these don't need to be sent to the IRS.
More complex plans, like defined contribution plans, require more time and paperwork that must be filed with the government. You may need to hire a benefits consultant to do the work. So the added expense will be a consideration for many businesses.
Americans in general are more concerned about saving. Those who are savvy investors like the idea of buying stocks when the market is falling _ if they're long-term investors, they know that over time the market will come back. So they'll welcome a retirement plan.
There are also tax deadlines coming up that make it a good time to be creating a plan:
_Sept. 15. Corporations that got extensions of the March 15 deadline to file their 2010 returns have until this day to make retirement plan contributions and get a deduction.
_Oct. 1. This is the last day that most businesses can set up SIMPLEs for 2010. If a company is started after Oct. 1 and it wants to create a SIMPLE, the IRS says it must set up a plan "as soon as administratively feasible."
_Oct. 17. Owners who are sole proprietors and who obtained extensions of the April 18 deadline to file their 2010 returns have until this day to set up a SEP and take a 2010 deduction. They can also make 2010 contributions for many types of plans and get a deduction.
Although Oct. 1 is the last day for creating a SIMPLE, owners have until the end of the year to set up more complex plans such as defined contribution plans.